Posts Tagged ‘competition’

The free market provides us with ever more clever goods at ever decreasing cost. This seems to please each of us, as a consumer. Like everything though, this comes with a cost; it requires each of us to compete, as a producer.

Many try to game the system by shutting out competition. It often doesn’t work, but whether it works or not, it requires coercion. 100 years ago, the unions used violence, coercion, and intimidation to organize workers and force employers to negotiate for wages and working conditions. Police and governments turned a blind eye to this blatantly illegal coercion.

In the course of the 20th century, governments passed laws empowering unions to organize and forcing employers to negotiate. However, by the end of the 20th century, American workers, feeling that competition suited them better had largely lost interest in unions. What union power remained was mostly in unions of government employees.

Individualism and meritocracy are fundamental to the American culture. Many immigrants chose to come here because individualism was in their nature.

Other lands have other cultures. A Japanese worker traditionally has worked for one employer all of his working life. Employment is like joining a family for life, and loyalty and security replace the competition of US workers. I believe adaption of American attitudes is causing a lot of cultural stress in Japan.

Many Asian cultures tend to be more communal in nature than European cultures. In deed, European cultures tend to be more communal than the American culture. There should be opportunity everywhere, but especially in America, for people with all sorts of cultural attitudes to exist and cooperate.

Economics is about individuals doing what they can, within their means, to satisfy their particular wants. Their ultimate goal is not goods, but satisfaction or happiness. If they are happier living without the stress of having to compete, they should be free to do so, so long as they don’t resort to coercion (including coercion by government).

They may find that this means settling for less in material wealth. This is what economics is all about, setting priorities and living within your means. I don’t expect civilization to evolve into one “best” culture, but rather into one world where many different cultures can freely mingle and cooperate in trade together.

Personally, I have taken the individualist, competitive approach in my work. I have worked for many employers, given each one my best efforts, but stayed within the type of work I could truly enjoy. I acquired a breadth of experience far greater than I could have found with one employer, and found that each time I left a job, I was qualified for a greater choice of jobs than the time before. In an inflationary economy, I have twice taken significant pay cuts to move to a new job. Each time I felt that I would be happier with the move, and I was.

In a free market, there is a place for each individual. Now, where can I find a truly free market?

GOVERNMENT BY ANARCHY
Just what is a nation? Is it the piece of land within some borders? Is it the people living therein? Or is it only the citizens therein? Is it the government of those people? What does citizenship mean?

I’m asking you to think from outside the box of the system we were all born into, and try to bring some insight into something so ingrained that we never really question it: the nature and purpose of government. I know that anarchy sounds scary, but anarchy is simply the absence of government. Thinking about anarchy could be a very powerful tool to understand government, and perhaps improve it.

From my perspective, government has always been an institution of power which enables some of us to use the rest of us, and to use the land, to their own benefit. A democracy or a republic is government which permits us some degree of choice of which bandits will “protect” us, just as the local mafia “protects” us. Democracy obliges politicians to offer us something in return for our votes. Usually we elect the ablest liars.

Conquest may clarify the relationship between people, land, and government. When we won the war with Mexico, the USA acquired what now comprises California, Nevada, New Mexico, and Texas. The inhabitants came with the land, and became Americans. They had no choice in the matter. So do the people own their land or does the land own the people? It seems from this example that the government owns both the land and the people. Wars are fought between governments to determine which government shall own the disputed land and people therein.

Do we really own the land we buy? I believe not. If government can tax us for “owning” the land, then the government really owns the land and we are paying rent to the government for the privilege of using it. When we “buy” the land we are really just paying the former “owner” for the transfer of the privilege of renting it from the government.

Who really owns the land becomes even more apparent when the government uses the power of eminent domain to take the property from you, compensating you with whatever amount it considers fair. That’s generous of government, since it really owns that land already, and you are just renting it. Government is just terminating your lease.

Income tax implies government ownership of people, and of what they produce. I have had the personal experience of having to file income tax returns for 2 different countries every year for several years.

From 1979 to 2000, I was resident in Scotland. Then I returned to the USA. I retained my US citizenship throughout that period, but was officially resident in Britain. During all that time, I had to file income tax returns for both countries.

The USA and Britain have a tax treaty agreement. The country of residence (Britain) at the time of the tax has first claim on my income. The country of my citizenship (The USA) has a second claim. If the American tax calculated on my whole income for the year exceeds whatever I have paid to Britain, I owe the USA the difference.

From this I deduce that, as a US citizen, the US owns me, and while I’m resident in Britain, the US shares that ownership of me with Britain.

Absolute proof that government owns us is the conscription of soldiers in time of war. The USA used conscription in the Civil War, WW1, and WW2.

So here’s my analysis; a nation is a territory with set borders. The land and the people therein are the property of the government. Wars are simply struggles between governments to secure ownership of the land and people.

A Libertarian/Anarchist Approach

As a libertarian, and a tentative anarchist, I find the power of government to be the big problem. With government, the government is sovereign and we are its servants. In the free market, the consumer is sovereign. He chooses those who serve him.

To view government from an anarchist or libertarian perspective, lets assume that government is here to provide some essential services for us, its citizens. How could we get the benefit of these services, but avoid the coercive monopoly of government?

Let’s see how a free market approach could provide these services. The free market prohibits coercion, and that eliminates monopoly. Suppose we have competing governments competing to provide us with their services. Such governments could offer services paid for by fee per service, or by subscription. You choose the government that offers the best value for money.

If you are disappointed with your choice, you can shop for a better deal from another government. Or you might get one service from one government and another service from some other government. There would be no room for politics, just competition. Competing governments would have to be efficient and honest to get and keep customers/subscribers/citizens. Government would be your servant, not your master.

The term “government” would hardly be appropriate in such a situation. “Service Provider” might better describe the new role of government.

Anarchist proposals are similar to this but they tend to designate these servants as insurance companies. Individual companies might specialize in one service such as education or roadways. Some might provide groups of related services such as police, courts & prisons. An insurance company might insure your life, safety, & property in conjunction with providing home security measures and police services. A free market in the services that governments provide would give us many choices. Competition would assure value for money. Wasteful bureaucracies would disappear.

Under competing governments, you and I might subscribe to different governments. In any transaction between us, we should agree in advance which government shall be given authority in case of a dispute. The Anarchists have this sort of problem worked out in some detail. Such arrangements would probably give us arbitration courts independent of the other services of government. The free market always produces solutions to problems with variations to suit everyone. I suggest you read “Chaos Theory”, by Robert P Murphy, ($8 from Mises Bookstore)

NOT A CONSPIRACY
When I talk about the interaction of government, lobbyists, cartels, and the unfree market, I’m not talking of conspiracy. All of these things happen as the result of the basic rule of Austrian economics; people act to satisfy their wants.

All of the problems of government intervention in the market result from this same basic rule. If people find that the easiest way to fill their wants is through the political route, they will use it.

Politicians find that the easiest way to get elected is to spend big money on TV Ads. The easiest way for a politician to get big money is to accept campaign contributions from corporations, unions, or lobbyists. Then they feel obliged to enable legislation favoring their contributors. That may sound corrupt and unprincipled, but it is legal, so it happens.

The basic root of the problem is simply the fact that government is power. Power does corrupt, and it attracts parasites. And government without power can hardly be called government.

In the USA in the 18th century, for whatever reasons, many people chose to be doctors. There were plenty of them, at least in the more settled areas away from the western frontiers. They were in competition with each other so they weren’t getting rich. Many of them, however, were not willing to accept the effect of supply & demand on their income.

They formed the American Medical Association (AMA) and set about lobbying congress for the powers they needed to limit the supply of doctors. Eventually they got the law passed and proceeded to close down most of the medical teaching schools and set rules and quotas for those remaining. In time they managed to reduce the number of doctors and greatly increase their incomes.

This was not a conspiracy cooked up in secret. It was a very open, legal creation, by government, of a cartel, or union, or guild, whatever you like to call it. The same thing occurs in any system involving licensing, be it lawyers or taxi drivers.

The involvement in government regulatory agencies of the industries the agencies are supposed to regulate is also the simple consequence of people seeking to fill their wants. They find that the political power of these agencies is the simplest path to create a cartel, get preferential treatment, and exclude competition.

It is so likely that any regulatory agency will be captured by those to be regulated that there should be no attempts to create such agencies. We would all be better served by government if all such existing agencies were shut down. Cartels, unions, and guilds benefit producers at the expense of consumers. Government regulators, instead of preventing this, end up enabling it.

MONOPOLY IN THE FREE MARKET
Monopoly is an absence of competition. When I first studied Economics, I got a strong impression that monopoly was the big, bad, wolf in the free market, an example of failure of the free market to provide the best possible deal for the consumer. Not So. Not in a free Market.
How do you achieve a monopoly? By being the first to produce a new product that people will buy. By serving the consumers. So far, everybody is a winner. The producer makes a profit, and the consumer gets a marvellous new gadget.
How do you maintain your monopoly position? Your profits attract competition which can soon eliminate the monopoly. To avoid this, the monopolist must act as though he already has competition. He must continue to improve his product, reduce his costs and his prices, and keep coming up with new products that people will want. Everybody is still a winner. Potential competition is all it takes to make the monopolist provide the best deal for the consumer.
Each worker has a degree of monopoly, because each worker is a unique person with unique attitudes, aptitudes, skills and experience. I have had the happy experience of getting an immediate job offer more than once because of particular experience in my past employment.
MONOPOLY IN THE UNFREE MARKET
If I could somehow eliminate competition, I could relax and make profit without the insecurity that comes with competition. How? I might use coercion, but that would be illegal unless I could get permission from the government, which holds a monopoly on coercion. This is how the Guilds operated in the middle ages; they were granted a monopoly by the monarch.
In the late 19th and early 20th centuries, labor unions used coercion with the tacit approval of governments. This was an era when Unions could control millions of votes to influence politicians. Later they managed to get laws passed to give them power: to exclude non-members from jobs, to strike without fear of being fired, to picket while on strike.
The 20th century produced dozens of government agencies to regulate commerce. In many cases, commercial interests took control of these regulators to shut out newcomers to an industry, creating cartels of the companies that got there first.
All of these monopolistic arrangements are empowered by Government and give profit to the monopolists at a cost to the consumers. Consumers pay higher prices, often for products of diminishing quality.
Union monopolies often prove self defeating. Increased wages to union workers increase production costs so that their employers can no longer compete, unless the employers also enjoy the advantage of a monopoly, or unless the unions can achieve a monopoly control of labor throughout the industry. In this case the increased cost of production, passed on to the consumer, reduces demand. This means reduced production and layoffs in the industry. In a unionized industry, this meant layoffs among those with the least seniority.
Even unionization of an entire industry can be self defeating if the industry has significant competition from abroad in countries with less union power. For this reason, early efforts to unionize tried to build international unions.
None of these monopolies could exist in a free market, which is driven entirely by the wants of the consumers (That’s you and me). These monopolies are the product of government intervention or collusion. There is, however, a legitimate way to achieve a monopolistic advantage. That way is to excel at competition, to “build a better mousetrap”, and keep doing so.
This is the realm of the entrepreneur (which is simply French for “enterpriser”). If you can find a way to greatly improve on an existing product, or better yet, dream up an entirely new and different product, get the capital and the people to design and produce it, you have a monopoly, for a time, on that product.
This has been an increasingly important way for a company to grow and profit, especially since the mid-20th century. Imitators will spring up, in time, to compete in producing this new product. The secret of success is to keep ahead of the imitators by forever developing newer, better products. In this situation, everyone is a winner, especially the consumer.

Nominal wages have risen continually since the 1930s, a natural result of perpetual legal counterfeiting. Thus prospective employers assume that they must offer you more than your wage on your last job.
At one point I was working as a production engineer for $65 a week. I quit there and applied for a job at another company. The only opening they had was as a technician at $60 a week. I was willing to take that, but they wouldn’t consider paying less than the $65 I’d been earning, so they gave me the title of engineer which paid $75 per week. I didn’t complain!
Working on military contracts is feast and famine. Years later I had a very successful job which I really liked. When the company ran out of contracts, they laid off every engineer but kept their technicians, who could work in production until another contract came through. I offered to downgrade to technician but the company wouldn’t consider it. Apparently that was against company policy.
On the other hand, many workers are determined to never accept a wage cut or a reduction in “status”. After many jobs and many titles, I’m convinced that titles are meaningless. Pay, and freedom to solve problems my own way, are the rewards that matter to me.
I have been laid off 5 times in the 44 years between school and retirement. Each time I moved on to a better job at better pay. The stress in the interval between jobs is painful. My shortest interval between jobs was 2 hours. The longest was 4 months. At one point I got a temporary job mopping floors, at the minimum wage, while my next employer spent 6 months obtaining a security clearance for me. All in all, I have probably spent 1% of my working life between jobs. I believe that is what a free labor market could achieve for all workers.
Workers, too, tend to spend up to the limit and “couldn’t possibly” live on less. When they have to, they find that they can live on less.
As a libertarian, I believe an employer has the right to hire and fire on any basis they choose, just as I have the right to accept or reject a job offer for whatever reasons I choose. If our reasons are foolish, we suffer the consequences, but liberty includes the right to be wrong.
I was once offered a good job in what I considered a good company, on the condition that I shave off my beard. I refused the offer. I sell my services, (and serve with enthusiasm), but not my personal freedom. Another prospective employer refused to even interview me because I didn’t have a college degree. I figure such arbitrary standards diminish their opportunities, as well as mine.
One of my employers, a government contractor, put on a drive to get every employee to buy government bonds. On principle, I refused. I was threatened with reprisals. When the drive ended, they froze my wages. That was their right. I found a much better job and left. I was the only electronics designer they had. They needed me more than I needed them.
Workers, as well as the entrepreneurs who start and guide companies to success, must be able to adapt to changes, and move on when necessary. There is no security, but endless opportunity in the free market.

Free competition is essential to a free market. Free competition between producers impels them to try to provide the best value for money to consumers. Free competition between consumers provides an adequate price to keep producers in business. Competition spurs the producers to ever increasing efficiency to bring down the cost, and the price of their products. It is competition that impels change and adaptation in production to keep up with consumers changing wants.

The opposite of free competition is monopoly. A producer with a monopoly has little incentive to innovate and reduce costs. With his monopoly, he can operate with big profit margins without the need to improve, innovate, or cut prices. His first priority, then, is to maintain his monopoly position.

Economists have long theorized that a producer can maintain his monopoly by undercutting the price of each competing startup until the startup fails. In practice, this doesn’t work. To survive, the monopolist would need to keep great reserves of money, a war chest, to take on all comers.

Monopolies naturally become inefficient and neglect innovation. New competitors will come on the market with greatly improved, cheaper products which no war chest can defeat. Wherever there is profit, competition will arise. Success in business is about recognizing and seizing opportunities. The way to maintain a monopoly position is to act as if there were competition, innovating and improving and reducing costs.

There is an easier means to suppress competition to maintain a monopoly: the political means. Government can provide the conditions to suppress competition. Protective tariffs can suppress foreign competition. Licensing laws and “friendly” regulation can entrench existing businesses. Such a monopoly cannot arise in a free market. Without government intervention to keep competition at bay, competitors will appear wherever there is profit to be made

There is, however, such a thing as a natural monopoly. A good example is the early telephone business. The first company to install the phone lines in any area had a strong advantage over new phone companies trying to set up in the same area. When people decided to install a phone in their home or business, they would naturally choose the company with the most subscribers. Soon Bell Telephone had a monopoly of phone service in most of the USA.

In time, Cable TV, providing combined TV, telephone, and internet, and Cell Phones provided the competition which ended the natural monopoly of the Bell System.

The Downside of Competition

Competition among producers benefits all of us as consumers. However, we are all producers, too. As producers, we find competition less welcome. We must hold our own in competition with others who might fill our jobs.

Your employer would welcome an opportunity to reduce his costs, either by replacing you with a more efficient or cheaper employee, or by installing capital equipment (tools), which reduce the number of employees he needs. Yes, we are in competition with tools, as well as other workers. The bottom line is that we must improve our skills, and accept whatever pay we can earn with our skills.

This doesn’t mean that, in the free market, those with less skill cannot earn a living. In a free market, free of minimum wage laws and government-granted Union power, there is work and opportunity for all, greater wealth for the more productive, and growing wealth for all as we develop our skills in the workplace.

The free market is a meritocracy. In the long run, we all live better than we would in any form of unfree market, with the exception of those who would use political power to enhance their earnings.